Mish's Global Economic Trend Analysis Message Board

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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: Square_Dealings who wrote (42307)	12/7/2005 12:50:43 PM
From: mishedlo	Read Replies (2) of 116555

I do recall many people saying oil would be be priced in Euros to which I replied and still maintain would be meaningless. Pricing oil in gold would probably be equally meaningless except the psychology of it. It matters not what something is priced in. What does matter is where reserves are held. If there is a shift to hold gold reserves then yes that will cause gold to soar. If there is not such a shift then it would be more or less meaningless. But if I did say that pricing oil in gold was silly, then I was correct. It is silly for the simple reason that gold is not as liquid as currencies. Try pricing oil in YAP Island stones or cotton and see what happens. Since gold is quoted in dollars, pricing oil in gold is essentially the same as pricing gold in dollars. Given there is no difference between pricing gold in Euros or dollars (as currency conversion is instantaneously and cost free) it is irrelevant (outside of yap island stones) what gold or oil is priced in. At any rate, Right now nothing is stopping Opec from taking dollars and buying gold. NOTHING. If something is then please tell me what that something is. The shift will come if and when countries start selling fiat currencies and buying gold and it will not take oil priced in gold to do it. The idea is more or less as silly now as ever. Ultimately however there will at some point be a blowup in the current fiat system. It is at the end of its life (relatively). Whether that takes another 20 years to resolve itself or not, no one knows. Gold may or may not be in the solution. I do not know how or when this will all resolve itself but as long as we are under the current system, my statements stand. Lets assume that down the road the system changes and "stuff" is priced in gold but as long as currencies can buy gold and as long as currencies float relative to each other, and as long as currencies are liquid, nothing will have changed by pricing oil or cotton in gold will it? If so what? Mish

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